How to provide criminal defense if a merchant is caught buying and selling USDT Tether?

Recently, many consultants have asked me that I have heard that being a U-business is very profitable, and I have seen many people doing it online. I wonder if there are any legal risks? So today I would like to talk about my views on the business of OTC merchants using USDT to arbitrage.

What does "arbitrage" mean for OTC merchants (U merchants)?

It usually refers to U merchants earning the difference by buying low and selling high on virtual currency trading platforms such as Huobi, Binance, and OKEX.

Can U-commerce business be done?

The answer is yes, after all, my country does not prohibit transactions between individuals in legal tender and virtual currency. With a few clicks of the mouse, you can make a profit of thousands or even more by simply buying and selling.

But. (Note, but is coming)

The above is just an ideal situation. If the number of transactions of U-merchants is too large, the transaction flow is too large or the transfer is too frequent, then you will face:

Alipay or WeChat account is permanently blocked

The bank's risk control department called several times to investigate

Frozen bank card

Suspected of money laundering

Summons by the police

Being scammed

…

(Wait for possible situations)

Facing administrative penalties or having your card or account frozen is indeed a headache. U merchants may have to go back and forth to banks and administrative departments many times to cooperate with investigations and submit written explanations and relevant evidence materials.

But more serious situations involve criminal legal risks.

According to the laws of our country and the current judicial practice, in OTC transactions, U merchants may be involved in the following criminal charges: illegal business operation, concealing and hiding criminal proceeds, proceeds from criminal proceeds, money laundering, assisting in information network criminal activities, fraud, opening a casino, etc.

Criminal risk of illegal business operation

(1) Circumstances involved

A case in point: Zeng introduced virtual currency to multiple people and used his bank card to help others buy and sell virtual currency multiple times. He was convicted by the court of illegal business operation[i].

Since OTC transactions are not defined as illegal or criminal acts by Chinese law, and my country does not prohibit transactions between legal currency and virtual currency between individuals, then why are OTC merchants involved in illegal operations?

Let’s take a look at the legal provisions. According to Article 225 of the Criminal Law, the crime of illegal business operation is “(iii) illegally engaging in fund payment and settlement business…without the approval of the relevant state authorities.”

The "illegal payment and settlement of funds" here refers to helping others transfer large amounts of funds, not cashing out.

According to the Payment and Settlement Methods issued by the People's Bank of China, banks are intermediary institutions for payment settlement and fund clearing. Non-bank institutions engaged in payment and settlement business must obtain a Payment Business License approved by the People's Bank of China.

Therefore, if the person does not have the legal qualifications to engage in fund payment and settlement business, but engages in illegal domestic fund transfer, scattered cash withdrawal and other services for others, it constitutes this crime. For example: money laundering by underground banks.

(2) Key points of defense

From the perspective of the elements of the crime, lawyers will have a better chance of winning a non-prosecution or innocent defense. The defense strategies are roughly as follows:

First, how to understand “fund payment and settlement”?

my country does not deny that virtual currencies have certain value, such as Bitcoin, which is characterized as "a specific virtual commodity." However, the law stipulates that virtual currencies do not have the same legal status as currencies.

“Payment settlement” is the transfer of funds between currencies. Since virtual currencies are considered “commodities”, the exchange between legal currency and virtual currency cannot be considered “fund payment settlement”.

In addition, the behavior pattern of "fund payment and settlement" in the crime of illegal business operation is generally that after collecting a large amount of money, a certain percentage of handling fees/service fees are deducted, and then a large amount of money is transferred to the payment account. The perpetrator assists others in engaging in a large number of collection and payment services (such as cashing out from public accounts to private accounts), and has the subjective motivation to obtain handling fee income. However, OTC merchants only make profits by moving, buying low and selling high, which is obviously inconsistent with the behavior pattern of "fund payment and settlement" in the crime.

Second, the arbitrage behavior of OTC merchants is a transaction between individuals. The "Announcement on Preventing the Risks of Token Issuance and Financing" (hereinafter referred to as the "94 Announcement") only prohibits ICOs and exchanges from engaging in exchange and information intermediary businesses. Therefore, C to C behavior is not prohibited by our country and is a civil act of legally buying and selling virtual currencies between citizens.

Third, the crime of illegal business operation in the criminal law must be "serious". According to the relevant provisions of the law on the standards for filing a case for this crime, the amount of "illegally engaging in fund payment and settlement business" must be more than 2 million yuan or the illegal income must be more than 50,000 yuan. If the OTC merchant's turnover does not meet the above standards, it naturally does not constitute a crime.

In addition, the act of earning the price difference by moving goods should be regarded as a reasonable way to make profits. "It is not a crime if the law clearly stipulates it." According to the principle of modesty of criminal law, the behavior of the perpetrator does not have social harm. There is no need for criminal punishment.

Conclusion

In judicial practice, not many OTC merchants are eventually sentenced to the "payment and settlement type" illegal business crime described in this article. More commonly, they are sentenced to the "foreign exchange trading type" illegal business crime. What is this situation? It will be introduced in the following article.